How does India fare in access to banking? A simple question, but with no simple answers. Mint (20 October 2016) used data on five indicators on bank branch data from the International Monetary Fund’s (IMF’s) Financial Access Survey to conclude that India is an underbanked country. However, the true picture of access to banking in India does not come out through IMF data. Since country comparisons need comparable data, to measure access to banking, the IMF survey uses a parameter that all central banks provide information on, i.e. numbers of branches of commercial banks. India’s number stood at 126,337 in 2015.

The number of branches needs to be normalized to make meaningful country comparisons—India ranks 89th out of 167 countries on the indicator of branches of commercial banks per 100,000 adults and 31st when it comes to branches of commercial banks per 1,000 sq. km. The problem is that using data only on branches does not reveal the true extent of access to banking in India.

For a decade now, the Reserve Bank of India (RBI) policy of financial inclusion has encouraged branchless banking through business correspondents or agents. Expansion through brick-and-mortar branches has always been a costly proposition for banks in rural areas and Brazil had showed that allowing non-bank agents to provide banking services was more effective than using only branches.

Since 2012, the RBI annual report has included a table on the progress of financial inclusion. The latest data show that the number of bank branches in rural areas has increased from 33,378 in March 2010 to 51,830 in March 2016, while the number of branchless banking outlets in rural India has risen from 34,316 in March 2010 to 534,477 in March 2016. This shows an impressive outreach of banking services through branchless banking.

Unfortunately, the data in the RBI table is flawed. Currently, the RBI has no specific details of any outlets other than bank branches/offices of all commercial banks. Details of the branchless outlets are available with individual state-level bankers’ committee (SLBCs) and there is no accounting for how many of these branchless outlets are active.

A MicroSave survey of five districts in Uttar Pradesh and Bihar in 2013 (The Curious Case Of Missing Agents In Rural India) revealed that as per the SLBC records of Uttar Pradesh and Bihar, these districts have a total 1,141 agents. Of these, data could be found for 923 agents, and 862 could be visited. “Interestingly, the remaining 61 villages in the SLBC records could not even be traced—no one had heard their names or could identify such villages”. In reality, agents were available and working in just 4% of the villages in the MicroSave survey.

Recognizing this problem, the Pradhan Mantri Jan Dhan Yojana (PMJDY) came through with a stricter monitoring approach in 2014. Under the PMJDY there are 32,481 branches and 126,592 agents or Bank Mitras; a geographic information system (GIS) map of its agent network was made available on the PMJDY website, with the names and contact details of the agents. Assessment of the PMJDY network by MicroSave showed that the increased visibility and monitoring had made a significant difference to the availability of agents on the ground. The national survey in December 2015 revealed that 97% of the agents listed could be interviewed and 89% were actively working.

RBI is aware of the problem of missing agents in its database and yet has been skirting the issue all these years. The Internal Working Group on Rationalisation of Branch Authorisation Policy aimed at “redefining branches and permissible methods of outreach” has suggested changes through its report this month.

To begin, while defining an unbanked rural centre, it looks only at the physical brick and mortar branch network, pegging the number of unbanked rural centres at 555,782. The report notes that the number of unbanked rural centres does not include “banking services rendered through other modes such as Satellite Offices, Extension Counters or Mobile Branches or the presence of business correspondents which have significant outreach”.

It then allows for the PMJDY agent network of 125,000 and brings this figure of unbanked rural centres down to 425,000. Curiously, the report does not specify why branchless outlets which it says have “significant outreach” were not matched to rural centres.

The group then makes two sensible recommendations through a two-phase approach. In the first phase, it recommends moving away from the emphasis on brick-and-mortar branches and expands the definition of a banking outlet as a fixed-point service delivery unit, manned by either bank staff or its business correspondent, where services are provided for a minimum of 4 hours per day for at least five days a week. Regular on-site and off-site monitoring of the “banking outlet” has been recommended for proper supervision, “uninterrupted service” and “timely addressing of customer grievances”.

It then redefines an unbanked rural centre as a rural centre that does not have a core banking solutions (CBS)-enabled “banking outlet” of a scheduled commercial bank or a CBS-enabled regional rural bank, local area bank, etc.

The recommendation for the second phase is actually crucial for monitoring the progress of financial inclusion through correct data—RBI should have a robust online and real-time system to capture location and details of all activity of all banking outlets. This will truly enable effective monitoring to determine whether regular service is being provided, as reported by the banks.

To conclude, the answer to the question, “How does India fare in access to banking?” will become clear only once there is a GIS-enabled activity map of all banking outlets, including the information on villages covered under a hub-and-spoke model.

Until then, India will remain an “underperformer” on access to banking.